In the initial stages of the pandemic, writer Elif Shafak, in her recently published essay How to Stay Sane in an Age of Division, recalled seeing signage spring up in parks in London with the question: “when all this is over how do you want the world to be a different place?”.
This is a question on the minds of our political leaders and regulators, as it is for the CEOs and heads of advice businesses and financial planning firms across Australia in respect of the industry’s future.
Last year people questioned the value of financial advice. This point is now settled. Its benefits to the individual and long-term economic prosperity are outlined in Rice Warner’s Future of Advice report. Modelling shows if greater provision of advice saw a 1 per cent uplift in the investment earnings of Australians, National Savings would increase by approximately $2 trillion over 30 years – an uplift equal to approximately 49 per cent of projected GDP.
Assuming the same modelling, expenditure on the Age Pension would fall 13 per cent up to 2049. Ensuring a generation of informed future shareholders and investors could be unleashed in that time across more demographics than is possible currently, is surely a crucial goal of economic recovery. Financial advice is the vehicle for that.
If research has not convinced anyone of this, circumstances should have. COVID-19 triggered a scramble on the best way to free up scaled and single-issue advice, a situation also unimaginable a year ago. The pandemic saw regulators and industry working on relief options to enable advice provision during some of the worst days of the pandemic, particularly in Victoria. More people are engaging with advice on issues with their superannuation, cashflow management or redundancy. They are not necessarily the financially independent who can afford a $2,400 Statement of Advice; however, they might be a time-poor working parent, aspirational for their family. They simply need that affordable second opinion on their super balance they’ve been putting off.
A message heard loud and clear at the FSC’s Future of Advice Summit was the need to eliminate unnecessary cost and duplication currently atrophying advice provision. The Government has also heard, announcing life reforms, a framework for the single disciplinary body and a reaffirmed commitment to streamlining and strengthening oversight of the advice sector. As the FSC leads this policy debate with proposals for delivering solutions to address this, it is consulting widely and listening carefully.
The impact of the pandemic alone has seen Australian households and businesses reportedly amass $200 billion. Beyond this, Australia is also undergoing a $3 trillion wealth transfer from its richest generation in history – the Baby Boomers – to their children, a generation different in culture and outlook. They have increasing asset wealth, but remain unadvised and in search of solutions currently too costly for advice businesses to deliver. While they like face-to-face delivery of advice, this generation is more open to technology within the advice process.
Not only must it be simpler and less costly, but advice must also be regulated so that it enables, not inhibits, sophisticated business models, unleashes the benefits of data to drive technological uptake and efficiency, and equips the professional financial advisers with the space to respond to a different type of consumer with different needs.
As part of this, the FSC in a recent submission to ASIC advocated that a genuine safe harbour be considered for scaled or ‘limited’ advice, updated regulatory guidance and a new approach for supporting compliance. The FSC has also offered solutions to better harness the vast array of data siloed across industry to drive innovation across the sector. Trying to utilise the existing regulatory framework to free up advice provision, however, ought not to become a game of square pegs in round holes. A new policy debate that delivers detailed solutions, certainty and confidence is needed.
The Green Paper on financial advice to be released in March will set out detailed solutions for public discussion. These have been developed by our members in seeking to untie the gordian knot of advice regulation putting it out of reach for consumers and charting a stable course on how to do so.
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